Serotta PETE
08-02-2006, 11:19 AM
Why Bike Prices
Are Shifting Higher
Strong Aircraft Orders Lift Cost
Of Titanium, Other Materials;
9% More for Lacrosse Sticks
By PAUL GLADER
August 1, 2006; Page D1
Cycling enthusiasts can expect to see prices head uphill for bikes made of in-demand specialty materials such as titanium and carbon fiber.
Driving the increase is a sharp rise in orders for airplanes made of the same materials, meaning that bike makers -- along with makers of sailboats, lacrosse sticks, tennis rackets, jewelry and bone screws -- are paying 25% more for raw materials and passing along some of the costs to consumers.
Prices for high-end bikes from makers such as Trek Bicycle Corp., Cannondale Bicycle Corp., and Serotta Competition Bicycles, some of which already cost more than $10,000, could rise 5% to 25%. A custom-made La Corsa titanium frame from Serotta, for instance, would sell for up to $7,000 with top components by the end of this year, up from $6,000 in January.
Amid rising demand, titanium and carbon-fiber makers are largely catering to their bigger customers: the aerospace industry. Zsolt Rumy, chief executive of St. Louis-based Carbon Fiber maker Zoltek Companies Inc., says he is trying to keep prices lower for bigger customers by raising prices for smaller ones, such as bike and golf-club makers, who constitute 15% of his company's business. "We really jack up the price" for smaller customers, he says. He's passed on more of the 60% to 100% increases to sporting-goods customers.
SPORTING A COSTLY CRUNCH
See a photo gallery of bikes and other products being hit by rising raw material costs. Plus, see more information on the affected companies.Meanwhile, the three domestic titanium makers -- Allegheny Technologies Inc. in Pittsburgh, RTI International Metals Inc. in Niles, Ohio, and Titanium Metals Corp. in Denver -- are planning expansions of raw-materials and titanium production -- but they don't want to ramp up too much and too fast, in case there is a collapse in the aerospace market. "Markets climbed so rapidly, they outpaced our ability to produce," says Robert Borowski, director of global procurement at Titanium Metals, which sells 95% of its titanium to aerospace, industrial and military companies and less than 5% to sporting-goods and jewelry makers.
"You have limited supply so you just can't perfectly satisfy every customer," he says, adding that Titanium Metals is asking customers to return scrap titanium so it can be recycled and resold.
Some consumers such as Jamie Hintlian are beating the increases. Mr. Hintlian, a 46-year-old pharmaceutical-industry consultant in Boston, rides about 3,000 miles a year, owns half a dozen bikes made of various materials and keeps his eyes open for new bikes and parts. Mr. Hintlian bought a $4,000 bike made by Seven Cycles Inc. this summer to beat the expected price rise this fall, saying he's noticed that prices tend to increase annually. "I'm not going to go over the top for the sake of having the latest and greatest at any expense," he says.
Titanium makers say their silvery gray product, made by refining and melting an ore extracted from rutile sand found in Australia and elsewhere, has the strength of steel and the light weight of aluminum. But it's far more expensive than both: Titanium can cost more than $32,000 a ton, compared with less than $1,000 a ton for carbon steel. The price of high-quality titanium, aluminum and carbon fiber has risen as orders from airplane makers and defense companies such as Airbus, Boeing Co. and Lockheed Martin Corp. are buying up a greater portion of the supply to keep up with demand.
The tight supplies of titanium and carbon fiber, a strong lightweight synthetic material, come as the bike industry keeps expanding. About 19.8 million bicycles were sold last year in North America, up 8.2% from 2004, according to the National Bicycle Dealers Association. Sales of bikes and bike-related parts topped $6 billion last year, up from $5.7 billion in 2004. Some bike makers estimate that 30,000 cyclists each year spend $3,000 or more on a new bike, a $90 million market.
MORE ON BIKING AND BOATING
• See a Q&A with a boat manufacturer, who discusses the challenges of higher-priced and tough-to-find raw materials.
• Plus, read cycling tips from Sam Callan, coaching education manager for USA Cycling in What's Your Workout?
• Read dispatches from the Journal's Dave Kansas from his recent ride across Iowa with thousands of other participants in Ragbrai, an annual event that's a combination of bike epic and cheerful festival.
But the growth also reflects the ever-escalating upgrades in bike models. Bike makers now use laser measurements, computer simulations, test-ride videos and drawings of a rider's body dimensions to create a more perfect ride. The desired growth in sales, coupled with tightening demand for raw materials, puts the bike industry in a bind.
A new wave of affluent cyclists is increasingly willing to pay higher prices for bikes that weigh less and are made of high-tech materials. But bike makers believe high prices eventually will hurt sales for middle-class buyers and could cause a return to other, cheaper materials such as lightweight steel. Cheaper bikes at retailers such as Wal-Mart Stores Inc. are typically made of steel.
"It certainly is problematic, not just for the bicycle industry but for the sporting-goods industry," says Ben Serotta, founder of Serotta Competition Bicycles, based in Saratoga Springs, N.Y. The company, which makes 3,000 bike frames a year, ranging in price from $1,200 to $4,000, buys from a dozen material suppliers because it couldn't get enough titanium and carbon fiber from its previous handful of suppliers.
Mr. Serotta's suppliers have boosted their prices up to 25% since last September, some of which he is passing onto customers. He raised prices in April and expects to do so again in September for a total increase of about 12% this calendar year. In the past, he would increase prices only once a year, averaging 4%.
Pat Hus, chief executive of Titus Cycles in Tempe, Ariz., says that whenever he hears that a supplier has carbon fiber in stock, he picks up the phone and buys it immediately, often paying up to three times what he paid a year ago. "If we don't move that day, it's gone," he says.
"At a certain point, it will affect the market," says Jennifer Miller, director of marketing and co-founder of Seven Cycles, based in Watertown, Mass. The company raised prices 10% this year and expects another rise for 2006-2007 models.
"If prices keep going up, I'm going to continue to pass on that price to the next user down the line, " says Mark Norstad, owner of Paragon Machine Works in Richmond, Calif., which machines bike parts from titanium for bike makers. Mr. Norstad has started buying titanium from foreign suppliers in Russia and China but says those prices of lower-grade titanium are rising as well.
Some wealthy cyclists, however, say they don't worry much about escalating prices for bikes. John Machette, a consultant for Accenture Ltd. in Chicago, says he keeps bikes at his apartments in Houston, Chicago and Washington, D.C., where he travels for work. Still, he bought a $1,200 Trek 1500 road bike recently to keep in Washington, rather than paying $5,000 for another model.
Write to Paul Glader at paul.glader@wsj.com
Are Shifting Higher
Strong Aircraft Orders Lift Cost
Of Titanium, Other Materials;
9% More for Lacrosse Sticks
By PAUL GLADER
August 1, 2006; Page D1
Cycling enthusiasts can expect to see prices head uphill for bikes made of in-demand specialty materials such as titanium and carbon fiber.
Driving the increase is a sharp rise in orders for airplanes made of the same materials, meaning that bike makers -- along with makers of sailboats, lacrosse sticks, tennis rackets, jewelry and bone screws -- are paying 25% more for raw materials and passing along some of the costs to consumers.
Prices for high-end bikes from makers such as Trek Bicycle Corp., Cannondale Bicycle Corp., and Serotta Competition Bicycles, some of which already cost more than $10,000, could rise 5% to 25%. A custom-made La Corsa titanium frame from Serotta, for instance, would sell for up to $7,000 with top components by the end of this year, up from $6,000 in January.
Amid rising demand, titanium and carbon-fiber makers are largely catering to their bigger customers: the aerospace industry. Zsolt Rumy, chief executive of St. Louis-based Carbon Fiber maker Zoltek Companies Inc., says he is trying to keep prices lower for bigger customers by raising prices for smaller ones, such as bike and golf-club makers, who constitute 15% of his company's business. "We really jack up the price" for smaller customers, he says. He's passed on more of the 60% to 100% increases to sporting-goods customers.
SPORTING A COSTLY CRUNCH
See a photo gallery of bikes and other products being hit by rising raw material costs. Plus, see more information on the affected companies.Meanwhile, the three domestic titanium makers -- Allegheny Technologies Inc. in Pittsburgh, RTI International Metals Inc. in Niles, Ohio, and Titanium Metals Corp. in Denver -- are planning expansions of raw-materials and titanium production -- but they don't want to ramp up too much and too fast, in case there is a collapse in the aerospace market. "Markets climbed so rapidly, they outpaced our ability to produce," says Robert Borowski, director of global procurement at Titanium Metals, which sells 95% of its titanium to aerospace, industrial and military companies and less than 5% to sporting-goods and jewelry makers.
"You have limited supply so you just can't perfectly satisfy every customer," he says, adding that Titanium Metals is asking customers to return scrap titanium so it can be recycled and resold.
Some consumers such as Jamie Hintlian are beating the increases. Mr. Hintlian, a 46-year-old pharmaceutical-industry consultant in Boston, rides about 3,000 miles a year, owns half a dozen bikes made of various materials and keeps his eyes open for new bikes and parts. Mr. Hintlian bought a $4,000 bike made by Seven Cycles Inc. this summer to beat the expected price rise this fall, saying he's noticed that prices tend to increase annually. "I'm not going to go over the top for the sake of having the latest and greatest at any expense," he says.
Titanium makers say their silvery gray product, made by refining and melting an ore extracted from rutile sand found in Australia and elsewhere, has the strength of steel and the light weight of aluminum. But it's far more expensive than both: Titanium can cost more than $32,000 a ton, compared with less than $1,000 a ton for carbon steel. The price of high-quality titanium, aluminum and carbon fiber has risen as orders from airplane makers and defense companies such as Airbus, Boeing Co. and Lockheed Martin Corp. are buying up a greater portion of the supply to keep up with demand.
The tight supplies of titanium and carbon fiber, a strong lightweight synthetic material, come as the bike industry keeps expanding. About 19.8 million bicycles were sold last year in North America, up 8.2% from 2004, according to the National Bicycle Dealers Association. Sales of bikes and bike-related parts topped $6 billion last year, up from $5.7 billion in 2004. Some bike makers estimate that 30,000 cyclists each year spend $3,000 or more on a new bike, a $90 million market.
MORE ON BIKING AND BOATING
• See a Q&A with a boat manufacturer, who discusses the challenges of higher-priced and tough-to-find raw materials.
• Plus, read cycling tips from Sam Callan, coaching education manager for USA Cycling in What's Your Workout?
• Read dispatches from the Journal's Dave Kansas from his recent ride across Iowa with thousands of other participants in Ragbrai, an annual event that's a combination of bike epic and cheerful festival.
But the growth also reflects the ever-escalating upgrades in bike models. Bike makers now use laser measurements, computer simulations, test-ride videos and drawings of a rider's body dimensions to create a more perfect ride. The desired growth in sales, coupled with tightening demand for raw materials, puts the bike industry in a bind.
A new wave of affluent cyclists is increasingly willing to pay higher prices for bikes that weigh less and are made of high-tech materials. But bike makers believe high prices eventually will hurt sales for middle-class buyers and could cause a return to other, cheaper materials such as lightweight steel. Cheaper bikes at retailers such as Wal-Mart Stores Inc. are typically made of steel.
"It certainly is problematic, not just for the bicycle industry but for the sporting-goods industry," says Ben Serotta, founder of Serotta Competition Bicycles, based in Saratoga Springs, N.Y. The company, which makes 3,000 bike frames a year, ranging in price from $1,200 to $4,000, buys from a dozen material suppliers because it couldn't get enough titanium and carbon fiber from its previous handful of suppliers.
Mr. Serotta's suppliers have boosted their prices up to 25% since last September, some of which he is passing onto customers. He raised prices in April and expects to do so again in September for a total increase of about 12% this calendar year. In the past, he would increase prices only once a year, averaging 4%.
Pat Hus, chief executive of Titus Cycles in Tempe, Ariz., says that whenever he hears that a supplier has carbon fiber in stock, he picks up the phone and buys it immediately, often paying up to three times what he paid a year ago. "If we don't move that day, it's gone," he says.
"At a certain point, it will affect the market," says Jennifer Miller, director of marketing and co-founder of Seven Cycles, based in Watertown, Mass. The company raised prices 10% this year and expects another rise for 2006-2007 models.
"If prices keep going up, I'm going to continue to pass on that price to the next user down the line, " says Mark Norstad, owner of Paragon Machine Works in Richmond, Calif., which machines bike parts from titanium for bike makers. Mr. Norstad has started buying titanium from foreign suppliers in Russia and China but says those prices of lower-grade titanium are rising as well.
Some wealthy cyclists, however, say they don't worry much about escalating prices for bikes. John Machette, a consultant for Accenture Ltd. in Chicago, says he keeps bikes at his apartments in Houston, Chicago and Washington, D.C., where he travels for work. Still, he bought a $1,200 Trek 1500 road bike recently to keep in Washington, rather than paying $5,000 for another model.
Write to Paul Glader at paul.glader@wsj.com